Employees Provident Fund Act 1952: Established in 1952, the Employees Provident Fund was known as the Employees Provident Fund & Miscellaneous Provisions Act, 1952, which excluded Jammu and Kashmir and extended to the whole of India.
- The Employee Provident Fund (EPF)
- Applicability of the Act
- Taxability of Provident Fund
- Income Tax Liability on the withdrawal of the Provident Fund
- What are the types of Provident Fund?
- What is the Provident Fund Contribution Rate?
- The breakup of EPF Contribution
- Universal Account Number (UAN)
Employee Provident Fund (EPF)
The Employees Provident Fund is a welfare scheme for the benefit of employees. Under this scheme, the employer pays the entire amount, but the employer and the employee contribute their part. The employer subtracts the employee’s share from the salary of the employee. The provident account of the employees gets credited with the interest earned on this investment. At the time of retirement, if certain conditions are fulfilled, the employee receives the accumulated amount.
Applicability of the Act
It is applicable when:
- Every factory involved in any industry mentioned in Schedule 1 employs 20 or more people;
- Every other institution notified by the Central Government which employs 20 or more people;
- Other institutions are notified by the Central Government even if they employ less than 20 people.
Every employee, as well as the one employed by a contractor (but apart from an apprentice engaged under the Apprentices Act or the standing orders of the institution and casual labourers), who receives wages of up to 6,500 rupees per month, will be suitable to become a member of the fund. The condition is three months’ continuous service or 60 days of actual work for members of the scheme.
Taxability of Provident Fund
Under Section 80C, the deduction for the Provident Fund can be claimed while calculating the Income Tax. After retirement, when the employee withdraws the Provident Fund and interest amount, the Provident Fund and interest are not taxable.
If any employee is unemployed for more than two months, they can withdraw their accumulated Provident Fund. After the withdrawal of 75% of the Provident Fund, the employee chooses whether they want to continue with the Provident Fund account or wish to withdraw the entire amount.
Income Tax Liability on the withdrawal of the Provident Fund
- If an employee withdraws an amount that is less than Rs 50,000 before completing their five years of continuous service, then no TDS is taxable, but while filing, the return amount of the provident fund will be shown.
- If an employee withdraws an amount that is more than Rs 50,000 before the completion of their five years of continuous service, then TDS is taxable @ 10% if PAN is furnished. If Form 15G/15H is provided, then TDS is not taxable.
- If EPF is withdrawn after continuous service for five years, then TDS is not taxable, and there is no need to mention the return of income as the amount is not taxable.
- When the Provident Fund is transferred from one account to another due to a change in the employee’s job, the return of income amount should not be mentioned since the amount is not taxable.
- Before finishing the five years of continuous service, if an employee gets terminated due to ill health, then the employer’s business is discontinued, or the reasons for the withdrawal are beyond the employee’s control, then TDS is not taxable. Furthermore, the employee should not offer the same in the return of income since the withdrawal is exempted from tax.
What are the Types of Provident Fund?
- Statutory Provident Fund (SPF)
- Public Provident Fund (PPF)
- Recognized Provident Fund (RPF)
- Unrecognized Provident Fund (URPF)
Statutory Provident Fund (SPF)
Registered under the Provident Fund Act of 1925, SPF is a type of provident fund which is also known as a government provident fund. Government employees, semi-government employees, universities, or educational institutions affiliated with a university established under a specified institution are qualified for this respective fund.
Public Provident Fund (PPF)
The Public Provident Fund Act of 1968 covers PPF. Any public member, whether employed or not, can invest in PPF. Rs 500 per annum is the minimum contribution, and Rs 1,50,000 per annum is the maximum contribution for this fund. The present rate of interest under the scheme is 8% per annum, and all the contributions made to the scheme along with interest are repayable after 15 years unless it is extended.
Recognized Provident Fund (RPF)
Registered under the Employee’s Provident Funds and Miscellaneous Provisions Act of 1952, RPF is a project that, along with the Act, states that any organization employing 20 or more employees is under an obligation to register themselves under this Act. Even if they have less than 20 employees, any such organization can voluntarily register themselves under this Act.
Unrecognized Provident Fund (URPF)
The scheme started by the employer and the employees in an organization that is unapproved by the Commissioner of Income Tax is called URPF.
What is the Provident Fund Contribution Rate?
The employer and the employee contribute 12% to the Provident Fund account (basic pay + dearness allowance + retaining allowance). Any organization which employs less than 20 people should be restricted to contributing 10% for both employee and employer contributions.
Employees receiving a salary that is less than Rs 15,000 per month, it is voluntary for them to become members of EPF. Employees whose salaries are more than Rs 15,000 per month at the time of joining are not required to make Provident Fund contributions. If they are interested in becoming a member of EPF, then they need the consent of the employer and Assistant PF Commissioner to become one.
The entire 12% of the employee’s contribution goes into their EPF account along with 3.67% (out of 12%) from their employer. The remaining 8.33% from their employer’s side is diverted to their EPS (Employee’s Pension Scheme), and the balance goes into their EPF account.
Breakup of EPF Contribution
12% of the employee’s salary goes to the EPF.
Whereas the contribution of the employer is divided as below:
- For EPF, 67% contributed.
- For EPS, 33% contributed.
- For EDLI, 5% is contributed.
- For EPF administration charges, 1% is contributed.
- For EDLI administration charges, 0.1% is contributed.
Therefore, 13.61% is the employers’ contribution. The employer pays for the management and premium charges. The maximum limit is 0.5% of Rs 15,000.
Universal Account Number (UAN)
A 12-digit number known as UAN is allotted to the employees who contributed to EPF to help with the easy transfer and withdrawal of claims. Throughout the life of the employee, the number remains unchanged.
Even if the job changes, the number remains the same. Based on UAN, SMS service on every deposit contribution and online KYC update can be provided along with the service of Online Passbook. But before all these, UAN needs to be activated on the EPFO portal.
If any member cannot withdraw from the Provident Fund for any reason, they can withdraw it without the employer’s consent. For EPS and EPF, they can submit FORM 19 and FORM 10C, respectively, with the testimony of any one of the following officials to the EPFO office where their EPF account is maintained:
- The Magistrate
- Any gazetted officers
- The Post or Sub Postmaster
- President of the Village Panchayat where Union Board is not present
- President of the Village Union
- Secretary or Member or Chairman of the District or Municipal Local Board
- Head of an Educational Institution recognized by the government.
- Member of Parliament or Legislative Assembly.
- Manager of the Bank where your savings bank account is maintained currently.
- Any authorized official approved by the commissioner.